Politics, books, history, foreign affairs, Caribbean, Middle East, Palestine, Israel, Iraq, China, Britain, United Nations, Oil For Food, Bush the Deserter, sex and rum and 1776 and lots of fun things from someone who has more columns than the Parthenon.

Tuesday, January 22, 2013

Down With Delaware!

Ian Williams calls for a change in IR focus over the next 25 years

As IR Magazine reports on its Q1 (first
quarter-century), the profession it covers surely stares redundancy in
the face in Q2, becoming more a case of investor relativity than
investor relations.

How do you ‘relate’ to a transitory blip on a
trading screen churning at near light speed? And at the other end of
the velocity spectrum, how do you deal with an index fund that will yawn
at whatever you say and only move when you get on or off a list?

During IR Magazine’s
quarter-century, the role of investor relations has seen momentous
changes – and I’m not just talking about the obsolescence of the fax,
even though a little over a decade ago most IROs thought life was
inconceivable without it.

There is a shrinking universe of stock
held by ‘interested’ shareholders – people who have bought into a
company and what it does, as opposed to those who have just taken an
option on a trading opportunity.

Interestingly, though, within
that diminishing population of stockholders, the proportion of those who
take an active proxy interest in companies appears to be growing.

It’s good to talk

The
best IROs see themselves as two-way communicators, telling management
what the shareholders want while briefing the latter on the state of the
company.

The cold reality, however, is that while, technically,
shareholders might pay IR departments’ salaries, it is the CFOs and
CEOs who sign the checks. Hardly surprising, then, that even the most
conscientious IRO’s agenda should reflect that of the executive team.

Which
raises an interesting question: will IROs in future be concentrating on
votes, trying to head off challenges to ‘their’ executives from the
theoretical owners who are getting increasingly uppity with each passing
proxy fight?

There should be some inner ethical wrangling
there. IROs tend to be well rounded and aware, almost Renaissance
figures in the breadth of their knowledge and the scope of their
activities.

Could they sleep easily while spending their waking
days defending incompetent and overpaid executives against the concerns
of the real owners of the company?

A better employment guarantee
for the future of IR is to expand its audience to include those who
invest their lives in companies. As shareholders march on corporate
castles with torches, tumbrels and pitchforks, arguing whether ‘tis
better to bury CEOs at the crossroads with stakes through their hearts
or to burn them at the stake, the question that arises is, ‘What about
the stakeholders?’

Dumbest idea in the world

For
example, it would have been an admirable learning experience for Jack
Welch to explain to GE employees his ideas of what constituted good
management before he axed 100,000 of them.

If he had had to do
so, it might not have taken him until 2009 – a full eight years after he
had left the company – to argue in an interview with the Financial Times,
with characteristic vigor but less-than-charasteristic philosophy:
‘Shareholder value is a result, not a strategy… Your main constituents
are your employees, your customers and your products. On the face of it,
shareholder value is the dumbest idea in the world.’

It was, of
course, Jack ‘the Ripper’ Welch who 30 years ago invented ‘shareholder
value’, which acted as a form of plenary indulgence for getting
managements out of Purgatory afterwards.

And for too long IR has
overemphasized selling management’s fevered visions to the stockholders
and raising the stock price while ignoring the main consequence, which
is that the CEO’s emoluments increase regardless of how well the company
does – in the case of Welch, even after his retirement.

Accompanying
this managerial aggrandizement has always been a pious invocation of
executive duty to the shareholders as the sole owners with fiduciary
interest in the conduct of a company, even though in reality it has
usurped stockholder power and looted companies.

The bitter
rearguard battles in courts and Congress to stop or dilute say on pay
are eloquent testimony to that, not least because they involved using
shareholders’ money to subvert shareholders’ rights.

This model
has failed companies and destroyed countries, as Welch seems to have
realized now he is no longer a beneficiary. As the Harvard Business Review,
publisher of the Legatum Prosperity Index, points out: ‘For Americans,
the headline is a simple if unwelcome one: the US is a nation in
decline. For the first time, the US does not rank among the top 10
countries in the world in terms of overall prosperity.’

A downward spiral

In
every measure of satisfaction distributed across a population, the US
has been sliding down the scale, as indeed has its close emulator the
UK.

The UN Development Programme’s Human Development Index, the
World Bank’s index and many others all record the inexorable Anglo-Saxon
slide down the rankings. Even on productivity, the US is falling
through the ranks.

It is surely no coincidence that all the
countries passing the US and the UK in the fast lane share a prejudice
that there is more to success than ‘shareholder value’.

The list
is interesting. Apart from Canada, Australia and New Zealand, which all
have union movements and a social democratic tradition of regulation and
worker protection, the other eight countries are European and go beyond
that: they provide for employee representation on boards of companies.

This
is a far cry from how they do things in Delaware, but it makes sense.
These European employees are stakeholders in every sense of the word:
their input, investment and interest in the company are far broader than
those of a transitory shareholder whose ownership might only be a
twitch of electrons in a silicon chip.

Indeed, through pension
funds, mutual funds and even direct holdings, many employees are
stakeholders in the specific terms that even US corporate law accepts.

It must be true, as Welch told the FT
so: ‘The idea that shareholder value is a strategy is insane. It is the
product of your combined efforts – from the management to the
employees.’

People in IR, the future is at stake! In Q2, there should be no slack for corporate looters!

No comments:

About Me

Born in Liverpool, now resident in New York, "Alms Trade" and "Rum" author Ian has written for newspapers and magazines around the world, ranging from the Australian to The Independent, from the New York Observer and the Village Voice to the Financial Times. He is the UN correspondent for Tribune, and senior analyst for Foreign Policy in Focus.
He has pundited on BBC, CNN, MSNBC, FOX, CBC and innumerable radio stations, for example appearing on Hard Ball,the O'Reilly Factor, and Wolf Blitzer. Online he writes for Salon, AlterNet and MaximsNews, among many others. He appears in Comment is Free on Guardian Unlimited.
His books are listed below - click and buy!